Brussels, 10 July 2006
The European Commission has sent the United Kingdom a formal request to end discrimination of foreign charities. The United Kingdom allows tax relief for gifts to charities, but only if they are established in the UK. Charities in other Member States are excluded from the relief and the Commission considers that this discrimination is contrary to the EC Treaty. The request is in the form of a ‘reasoned opinion’ under Article 226 of the EC Treaty. If the United Kingdom does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.
"The rules of the Internal Market forbid discrimination of charities in other Member States." said EU Taxation and Customs Commissioner László Kovács. "Gifts to bona fide charities in other Member States should get the same tax treatment as gifts made to domestic charities."
The United Kingdom offers various forms of tax relief for gifts to charities. However, this favourable tax treatment is only granted if the charity is established in the United Kingdom.
The difference in treatment between gifts made to charities in the United Kingdom and charities in other Member States constitutes an obstacle to the free movement of capital. Cross-border gifts are explicitly mentioned in Council Directive 88/361/EEC, which provides for a Community definition of capital movements.
The discrimination is also contrary to the free movement of persons, as workers and self-employed persons moving to the United Kingdom might wish to make gifts to charities established in the Member State where they came from.
Finally, the rules are contrary to the freedom of establishment, as foreign charities are forced to set up branches in the UK in order to benefit from the favourable tax treatment.
If the United Kingdom would like to check whether the assets and income of charities in other Member States are only used for charitable purposes, it can ask for assistance of the Member States where the charities are established on the basis of the Mutual Assistance Directive (77/799/EEC).
The Commission's case reference number is 2005/2281.